Although a tip is supposed to be given in recognition of good service, many people leave a gratuity regardless of how they are treated at a restaurant or coffee shop -- perhaps understanding that most servers rely on that extra money to pay their bills. Yet there's also a level of social pressure to leave something, and with tipping features added to the functionality of mobile ordering and payment apps such as those deployed by Starbucks (NASDAQ:SBUX), we could see a new boost in the prevalence of tip shaming.
A spate of articles have appeared in recent weeks highlighting the way the interface of electronic payment service Square automatically displays tip options depending on the total ticket price, from $1, $2, and $3 for checks under $10 to percentages ranging from 15% to 25% for those tabs over a sawbuck. While there are also options for a custom tip amount -- or even no tip at all -- it becomes harder to snub the waitress who's standing there holding the smartphone while you complete the transaction.
Moreover, the defaults are already pushing tip inflation higher. Some establishments report a 30% increase in tipping, while Square itself says 45% to 50% of all transactions using its system include a tip, up from 38% a year ago, with the average gratuity being 17%. Apparently whether or not we tip becomes more a statement on us as people as opposed to the service we received. The tip jar was easy to ignore; the in-your-face tip app, not so much.
A tip is derived from the acronym for "to insure promptitude." Tipping in the U.S. apparently began after the Civil War as wealthy Americans traveled to Europe and saw the custom employed there. Upon returning, they began copying the gesture to show their worldliness. However, there was something of a backlash against the practice as it went against the egalitarian principles of the country -- waiters and coachmen were employees, after all, not servants -- and there were even attempts to legislatively ban the practice.
Today, tipping is an unavoidable part of our daily lives (tipping.org says even buffets aren't exempt) ... much like smartphones and apps.
While Starbucks' mobile app offers a tipping option, it's far more discreet than Square's -- it appears in the corner of the screen and may be just as much a convenience for customers as a means of driving more tipping. After all, if you're already paying via a mobile device, why would you then want to dig around in your pocket for change? The java slinger says it processes 5 million mobile transactions every week in the U.S., with almost 10 million customers having downloaded its mobile apps. Mobile payments now account for 14% of its in-store transactions domestically, up from more than 11% in January 2014.
According to a study by WorldPay, mobile payments for online purchases will increase globally from $18 billion in 2012 to an estimated $117 billion in 2017. These transactions are projected to account for 3% of the global e-commerce market in 2017, up from just 1% in 2012.
Yet last week Fortune wondered whether Starbucks baristas would really benefit from the tipping feature; it came to the conclusion that no, they won't since the assembly line nature of the coffee shop removes a personal connection with the customer. It's that connection like you'd find in a restaurant from a waiter that leads to the social awkwardness if a tip isn't left. Also, a lot of people question whether tipping for counter service is even appropriate.
Square was expected to launch an IPO this year, but that's been taken off the table for the moment, which could allow Starbucks to gain more ground as it mulls whether to license its popular, sleek interface to other companies. Restaurant workers might prefer the Square app to Starbucks' as it can shame customers into leaving tips (and possibly higher ones), but customers may ultimately prefer the coffee shop's app that lets the gratuity be connected to the service rendered.
Sales at table-service restaurants was estimated to be around $207 billion last year. With an average 15% gratuity, that's about $30 billion in tips left annually. We may still feel some social pressure to leave a tip even when it's not justified, but we shouldn't be shamed into doing so.
Starbucks hasn't yet called us out if we want to be cheap, but we can always resort to leaving a single penny, as my parents did to indicate poor service ... whether it's an actual coin or a virtual one on a smartphone.
3 stocks poised to be multi-baggers
Whether it's Starbucks changing the coffee industry or Square (maybe) changing the way we pay, the one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.
Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.